Netflix Inc. has the largest primetime television audience in Canada. It has the most subscribers of any TV service provider. But apparently nothing tops its capacity to exasperate the entire broadcasting industry.

The crux of their frustration is that the regulatory regime treats Netflix differently since it exempts digital media endeavours from the Canadian content quotas and funding requirements traditional broadcasters must obey.

This regulatory disparity is why the industry is making much ado about Netflix and other online streaming services as the broadcast regulator plots the future of audio and video distribution in Canada — a task it must complete on a tight deadline.

The Canadian Radio-television and Telecommunications Commission, at the behest of the federal government, has until June 1 to deliver a report on future business models to ensure a “vibrant domestic market” that supports the creation, production and distribution of Canadian content.

But there’s no consensus on how to do that in the online streaming era, according to the second round of proposals that the CRTC received from dozens of industry players in mid-February.

One camp wants the government to enforce broadcast regulations for streaming services such as Netflix; another wants it to deregulate broadcasting. Some outright ignore the Liberals’ vow not to tax Netflix or the internet, asking Ottawa to implement such taxes and spend the money on Canadian content. Many called on the government to at least require Netflix to collect and remit sales taxes.

One universal conclusion emerged from the myriad proposals: The industry agrees the internet has forever shaken traditional audio and video consumption and their underlying business models.

“The genie is out of the bottle,” Rogers Communications Inc. said in its submission. “There is no going back to the protected closed broadcasting system that existed prior to the widespread adoption of broadband internet.”

Rogers and BCE Inc. both proposed regulations to force streaming services to fund Canadian content as traditional broadcasters are required to do.

Rogers pitched a revised framework that would apply to all content providers, regardless of platform, producer or content.

“It is our view that regulatory symmetry is the only fair and reasonable way to ensure the long-term health of Canadian programming, in both official languages,” Rogers said.

There is no going back to the protected closed broadcasting system that existed prior to the widespread adoption of broadband internet.

Rogers Communications

It proposed over-the-top services, alongside broadcasters, pay 30 per cent of their revenue to fund Canadian programming expenditures. Under this framework, all programming would have to follow CRTC Canadian content rules and all providers would have the same access to funding.

“This is a pivotal moment for the Canadian broadcasting system. If foreign and domestic over-the-top services are not required to contribute to the country’s cultural objectives, the volume and quality of Canadian content will inevitably decline,” Rogers said.

Rogers argued it’s “not a dubious idea” to require foreign services to invest in Canadian content. The telecom giant pointed out Netflix appears to have already accepted the concept by signing a deal with Canadian Heritage Minister Mélanie Joly to spend $500 million over five years on original productions.

Netflix has an estimated six million subscribers in Canada (it doesn’t reveal specific numbers) compared to about 11 million TV subscriptions split between numerous providers. If these users all paid the standard monthly price of $10.99, Netflix would earn roughly $790 million annually.

In 2016, Netflix beat CTV to grab the largest primetime viewership among the lucrative 25-to-54 age market, Bell said in its submission citing data from Numeris.

Bell proposed that any streaming service earning more than $100 million in annual revenue be required to contribute 20 per cent of revenue to Canadian programming expenditures by 2022.

“The regulatory model must urgently recognize that a two-tier system, one regulated and one not, is unsustainable,” Bell said.

Bell has proposed that any streaming service earning more than $100 million in annual revenue be required to contribute 20 per cent of revenue to Canadian programming expenditures by 2022.Postmedia News files

Bell argued Netflix has a five to 13 per cent cost advantage over local services such as its CraveTV, CBC’s Tou.tv and Quebecor Inc.’s Illico that must pay sales tax. If the government refuses to require foreign streaming services pay sales tax, Bell asked it to exempt local platforms as well.

Telus Corp., Shaw Communications Inc., Corus Entertainment Inc. and Quebecor took the opposite approach. Instead of trying to regulate streaming services, they argued the broadcast sector should be deregulated.

Corus estimated that foreign streaming services have a 25 to 30 per cent cost advantage over Canadian TV providers that must pay sales taxes, contribute to Canadian content and follow a host of other rules including mandatory carriage, over-the-air transmission and closed captioning.

Adhering to all those rules is going to become a bigger problem as declines in TV viewership and advertising revenues are “more aggressive than forecast,” Corus said.

As such, Corus asked the CRTC to eliminate restrictions on foreign investment, reduce Canadian programming expenditures and axe the rules that limit ownership of local TV stations to one per market and radio stations to two FM and two AM per market.

Telus also called for “targeted deregulation” to level the playing field between foreign and Canadian services.

“Left unchecked, this regulatory imbalance poses a threat to the survival of the domestic broadcasting sector,” Telus said in its submission.

It recommended TV providers phase out their contributions to the Canada Media Fund (CMF), with the government stepping in to fill the gap.

Left unchecked, this regulatory imbalance poses a threat to the survival of the domestic broadcasting sector

“The pursuit of such goals are better left in the hands of our public institutions, who should receive concomitant increases in government funding to enable them to fulfill this important role.”

The 2018 federal budget took a step in that direction. It promised $172 million over five years to maintain the CMF at 2016-17 levels. The fund has been dwindling as customers cut the cord on cable subscriptions, thus reducing the mandatory contributions from the broadcasting sector.

Shaw called on the government to take an “increasingly hands-off approach” to broadcasters and TV providers by eventually eliminating any required financial contributions.

“It is absolutely critical to eliminate the significant regulatory and financial advantages that have been provided to the over-the-top sector, which are serving to artificially accelerate the growth in foreign online providers and the decline of licensed players,” Shaw said in its submission.

Quebecor, which also called on the government to enforce sales taxes on digital offerings, believes it’s better to relax regulations for Canadian businesses rather than impose an old framework on services such as Netflix. It questioned whether regulations on foreign video services would even be enforceable.

Netflix did not submit an intervention in the second consultation phase. But in its first submission, it argued that “importing broadcast-era rules to internet media will not achieve intended policy goals and will limit growth, competition, and creative freedom for new media models and creators.”

A Netflix poster for the rebranding of the latest Anne of Green Gables TV drama, which originally aired on CBC.Handout/Netflix/The Canadian Press

It argued the open internet dissolves the barriers of entry into the broadcast world, enabling content creators to reach audiences around the globe. Canadians have had success with the new business model, Netflix said, pointing to its co-productions Alias Grace and Anne.

Netflix noted the internet is a common carrier — meaning ISPs do not control the content transmitted over their networks. Canada’s largest ISPs cite this as the reason they shouldn’t be required to contribute to Canadian content production.

Rogers, Bell and Telus all report skyrocketing data usage by customers who can’t seem to get enough video, but they vehemently argued against any sort of tax on ISPs. They say contributions would be inappropriate since they are common carriers.

But some industry players believe ISPs should contribute given the volume of content watched online, especially since internet revenue keeps rising as television revenue falls.

The CBC, Canadian Media Producers Association and Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) all called for ISPs to pay into the content creation system.

It’s “inherently unfair” that internet and wireless service providers receive revenue for access to programming without paying into a fund, CBC said in its submission. It called for all players to support a single audio-visual programming fund.

The Canadian Media Producers Association agreed that internet and wireless providers are “key elements of the broadcasting system” and said the CRTC should get the power to make them contribute.

These proposals fly against the federal government’s promises to keep the internet affordable. But so do the telecom giants’ proposals to regulate Netflix.

The conflicting proposals reflect the state of an industry that’s struggling to thrive in a disrupted market. In this chaotic environment, the CRTC has three months left to develop the story line for what happens next.

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